Short Shipment: A Term the Rules Don’t Define, but Bankers Still Use

A small discussion that turned into an interesting rediscovery

Actually, this is not a typical Q&A but rather a short exchange between me and Bogdan, a trade finance expert whom I have known since we were both editors of LC Monitor (Trade Services Update) some 15 years ago.

What amused me most was not the question itself, but the way it came about. Only recently did Bogdan discover that I am also “Mr. Old Man,” after searching online for materials on partial shipment and short shipment and unexpectedly landing on my old WordPress page, “Mr. Old Man – For Those Who Eat, Sleep and Breathe Letters of Credit.”

The world of trade finance may be large, but sometimes it feels surprisingly small.

QUESTION

Dear Huu Duc,

Are you Mr. Old Man?

I was looking for some opinions on the net and found this:

https://nhducdng.wordpress.com/2014/02/26/short-shipment-or-not/

We have a client waiting to receive an L/C stating that partial shipments are allowed, but under field 47A it will state that short shipment is not allowed.

The ICC once gave an opinion on a refusal claiming short shipment, stating that it is not a discrepancy when not all the quantity is shipped and the full value of the L/C is not drawn, since partial shipments are allowed.

If you search on Wikipedia or elsewhere, you will see that partial shipment and short shipment refer to different things. Short shipment would mean that the quantity actually received is less than the quantity described in the packing list or bill of lading. In such a case, since under an L/C we deal with documents and not with goods, I find the expression short shipment meaningless, and it seems to be an issue that must be settled by the applicant and beneficiary outside the L/C.

I would very much appreciate your opinion on this.

My best regards,

Bogdan

_______

ANSWER

Dear Bogdan,

Yes, “Mr. Old Man” is the name I have long used when answering readers’ questions on my website and blog of the same name:
www.mroldman.net
https://nhducdng.wordpress.com/

I agree with you that neither UCP nor ISBP defines or formally covers the term short shipment. However, in practice, banks do sometimes raise a discrepancy described as “short shipment,” particularly where the credit does not allow partial shipment but the documents indicate that the quantity shipped is less than required.

A simple example may help clarify how the term is used in daily practice.

LC requires:

• Commodity: ABC
• Quantity: 1,000 kgs
• Partial shipments: Not allowed

Presented invoice shows:

• Commodity: ABC
• Quantity: 900 kgs

In such a case, banks often describe the discrepancy as “short shipment,” although technically what they are pointing to is that the shipment does not comply with the quantity requirement and effectively constitutes a prohibited partial shipment.

The expression itself is not entirely foreign to ICC practice. For example, the term appears in ICC Opinion TA.816rev, summarized briefly below:

A credit allowed partial shipment but required the beneficiary, if no further shipments were to follow, to present a statement to this effect, supported by a certificate for the final shipment.

The credit was not fully drawn, and the beneficiary presented the required certificate confirming that no further shipments would be made.

The issuing bank nevertheless considered the presentation discrepant due to “short shipment and short drawing,” a position disputed by the nominated bank since partial shipments were allowed and the required certificates had been provided.

Similarly, ICC Opinion TA869rev refers to a refusal citing “short shipment in 8 containers.”

From these cases, one may observe that although the term is not defined in the rules, it does appear in banking vocabulary as a descriptive label rather than a technical term under UCP.

For the situation you describe, I would suggest that the credit wording should be made more precise in order to avoid misunderstandings or disputes.

For example:

LC requires:

• Commodity: ABC
• Quantity: 1,000 kgs
• Field 47A: Partial shipments are allowed, but limited to two shipments of 500 kgs each

If the documents presented for the second shipment show a quantity of only 400 kgs, the bank may reasonably refuse the presentation, and in practice the discrepancy might again be described as “short shipment.”

In the end, the real issue is not the terminology but the clarity of the credit terms. Clear drafting almost always prevents arguments later.

Best regards,
Nguyen Huu Duc